Big tax refund leads to bigger problem

The IRS charges interest on an excessive refund it had made in error.

May 26, 2012|Paul Muschick | The Watchdog

Just when I think I can't top the last clueless government story I heard, I hear from people like Jim Brasted and Bonnie Strunk Brasted.

They tried to be good citizens and do the right thing. What did that get them? A threat from the Internal Revenue Service to seize their money. Then a promise that the baseless seizure would be called off. Then the government seized their dough anyway.

It's this kind of needless grief that convinces me government no longer is for the people, as our Founding Fathers proclaimed.

The Brasteds, of Allentown, have spent two years fighting with the IRS over an error they said the agency made processing their 2009 tax return.

What's especially aggravating is they said they knew immediately the IRS had messed up. But try explaining that to some bureaucrat. They said when they tried, they literally were laughed at. Why? Because they were trying to return money to the government.

The Brasteds knew that in May 2010 the IRS gave them nearly four times what they were due for their 2009 tax return. The IRS told them in a letter the larger refund was because the agency reduced the amount of taxable Social Security benefits they'd reported, "because there was an error in the computation of the taxable amount."

The letter told them they could call the IRS for an explanation.

Strunk Brasted called. She said two IRS representatives had no answers, then hung up on her. She said they didn't seem to take her concern seriously, telling her no one complains about getting too big a refund.

She and her husband knew better. They put the extra money, $2,257, in the bank, figuring the IRS eventually would demand it back because they were sure they had filed an accurate return.

Last September, 15 months later, the IRS did. And the Brasteds gladly paid it. But they drew the line at paying more than they owed.

"I knew they'd want it back, but I never knew they'd have the gall to want interest for their mistake," Strunk Brasted said.

The IRS told them they owed $119 in interest, for holding onto government money they'd tried to return.

The Brasteds refused to pay.

They've gone back and forth with the government ever since. Even intervention from Sen. Bob Casey's office hasn't resolved things. The IRS told me it couldn't discuss the matter because of taxpayer privacy laws, and said the Brasteds should seek help from the IRS Taxpayer Advocate Service.

In a letter 19 months into the dispute, the IRS finally explained why their return had been adjusted. It had disallowed the taxable amount of Social Security they had reported because they had failed to also enter the gross amount on a subtotal line in the form.

"The mistake made was not entering the correct figures on the appropriate lines on your return, and not IRS error," the IRS wrote.

The Brasteds acknowledge they left a line blank. They said it was an oversight but wonder why it should matter, because they entered the correct taxable amount.

Maybe that technically was a mistake. But why didn't the IRS explain that when they first asked 19 months earlier?

Instead, the dispute dragged on until Uncle Sam had enough. In early April, the IRS told the Brasteds to pay up or it would seize any tax refund they had coming this year, or even take possession of any of their property, presumably including their elegant city row home.

Then things took a brighter turn in early May.

Strunk Brasted said an appeals officer told her the interest would be waived, as it was clear there had been an administrative error and they should not have to pay. Two weeks later, the IRS took the couple's money anyway, deducting it from their 2011 tax refund.

That didn't surprise Jim Brasted, a retired political science professor who knows a thing or two about how government works, or at least how it's supposed to work.

"Operations get put on cruise control and the right hand doesn't know what the left hand is doing," he said.

Strunk Brasted said she immediately called the appeals officer who had told her the interest would be waived. She said he assured her they'd get their money back, months from now, after the computer network at the IRS realizes the penalty had been abated yet collected.

"I hope the computer is smarter than the people," Strunk Brasted told me.

So do I. Because after looking into their case, I discovered more than poor customer service and government incompetence. I learned the IRS, one of our leading financial agencies, sucks at math.

The seizure letter the Brasteds received May 10 says they'd been due for a refund of $1,541, and the $117 penalty (which they initially had been told was $119) had been deducted. The IRS told them that left them due a refund of ZERO. That obviously wasn't right, and thankfully the bean counters weren't using the same math and paid them the correct amount.

Oh, and that letter was dated May 21, meaning it supposedly was drafted nearly two weeks AFTER they received it.

Maybe the answer to the national debt is to double-check all IRS math.

There's also a lesson to be taken from the Brasteds' dilemma. If you get too much of a refund, don't think the IRS won't eventually figure it out and hunt you down to get it back, and maybe even more.

"Don't rejoice," Strunk Brasted said. "Fight even harder than we did to give it back."

The Watchdog is published Thursdays and Sundays. Contact me by email at watchdog@mcall.com, by phone at 610-841-2364 (ADOG), by fax at 610-820-6693, or by mail at The Morning Call, 101 N. Sixth St., Allentown, PA, 18101. Follow me on Twitter at mcwatchdog and on Facebook at Morning Call Watchdog.

Having trouble with the IRS?

Ask your senator or congressman to intervene or contact the Taxpayer Advocate Service, an independent organization within the IRS, at http://www.irs.gov or 1-877-777-4778.